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Corn Crops Bringing in Lower Prices

Posted on: Friday, 7 October 2005, 15:00 CDT

By James Mayse, Messenger-Inquirer, Owensboro, Ky.

Oct. 7--A combination of factors -- including fuel prices, unexpectedly large harvests and Hurricane Katrina -- is making life difficult for farmers taking their corn crops to market.

Corn prices are depressed, and crop subsidy payments were not making up the difference Thursday in the Owensboro region. One grain company was buying corn from farmers Thursday for $1.54 per bushel, well below the county's "loan rate" of $2.10.

The loan rate is a federal benchmark, and crop subsidy payments are triggered when the purchase price drops below the rate. But the subsidy being paid is only 40 cents -- giving farmers who sold their corn Thursday a total of $1.94 per bushel. While the loss of 16 cents may not sound dramatic, it can add up in a hurry -- especially when corn fields normally produce more than 100 bushels an acre.

Part of the problem is that the corn harvest appears to be larger than expected, said Steve Riggins, a grain marketing specialist with the University of Kentucky.

"In spite of the damage, the bad summer Illinois had, it appears we have a big corn crop out there," Riggins said. " ... We knew it was going to be a decent-sized crop. We didn't know it was going to be a massive crop like this."

A large supply of corn was also carried over from 2004's record harvest. Complicating matters is that transportation along the Mississippi and Ohio rivers has been slowed by a shortage of barges coming north from the Gulf ports.

Heavy demand for barges in the Gulf is keeping many barges from coming north to transport grain. The cost of transporting grain has also increased dramatically, due to both the scarcity of barges and the cost of fuel.

"Right now, it's costing 90 cents a bushel to take grain to the Gulf," said Larry Lenning, manager of DeBruce Grain's Daviess County operation. Normally, the cost to transport grain to the Gulf would be 20-30 cents, Lenning said.

Farmers might feel they are being short-changed, and it is unusual for a loan deficiency payment to not make up the difference between the selling price and the loan rate. But loan rates are set annually. Transportation costs are again to blame.

To calculate the loan deficiency payment rate, the federal government figures the cost of moving grain from the Owensboro area to Owensboro's two designated major ports, Memphis and the Gulf. The government subtracts the transportation cost from the selling price at the port to create a "posted county price."

The posted county price for Owensboro on Thursday was $1.70 per bushel. By subtracting $1.70 from the $2.10 loan rate, the county's loan deficiency payment rate was set at 40 cents per bushel.

With grain elevators paying less for corn due to high transportation costs, the price of corn in Owensboro Thursday fell well below $1.70 -- meaning farmers selling corn would not receive the $2.10 loan rate.

"The reason that's happening (is) it's up to the elevator what they pay producers," said Amelia McNeely, a program specialist with the state office of the U.S. Farm Service Agency. " ... It's a little out of our control what the producers actually receive at the (elevators)."

The agency has received phone calls from farmers angry they are not receiving the $2.10 loan rate. But McNeely said the loan deficiency payment "was never designed to make up the full difference, the way I understood."

By January, corn prices are projected to increase to $2.04 a bushel. With prices depressed, farmers are attempting to store all the corn they can until the market improves.

Storage space can be tight, however -- and farmers are also harvesting soybeans, which will further dent the available storage. As with corn, estimates indicate a strong soybean harvest this year.

"There are piles and piles of grain sitting around at the various elevators," said Craig Gibson, a UK area farm management specialist. With large stocks and the inability to move them downriver "there doesn't seem to be enough storage," Gibson said.

Some farmers have been reluctant to build grain storage, because they raise grain on rented land. With a tight market for rented farm land, farmers don't want to build storage and then lose the land on which they were growing crops, Gibson said.

"The good part about the whole matter is the crop is certainly good this year. I've heard nothing but above-average yields," Gibson said. "I'd rather have above-average yields and a (lower) price than the reverse."

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Copyright (c) 2005, Messenger-Inquirer, Owensboro, Ky.

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Source: Messenger-Inquirer

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